Short answer: the 4% rule says you can withdraw 4% of your retirement portfolio in your first year of retirement, then raise that dollar amount with inflation each year, and have a very high chance of your money lasting 30 years. On a $1,000,000 portfolio, that means $40,000 in year one. It is a planning shortcut, not a guarantee — the rule’s creator now says 4.7% and Morningstar says 3.9% for 2026 retirees.
Where the 4% rule came from
In 1994, financial planner William Bengen tested withdrawal rates against U.S. stock and bond history back to 1926, asking what starting rate would have survived every 30-year retirement on record — including the Great Depression and the 1970s inflation shock. His answer was about 4%, for a portfolio with at least half in stocks, a figure he later called the SAFEMAX. In 1998, three Trinity University professors published a similar study (1925–1995) finding that 3% to 4% inflation-adjusted withdrawals very rarely depleted a portfolio within 30 years. Together, the two studies made 4% retirement planning’s most famous rule of thumb.
How the rule works in practice
Two mechanics matter, and most misunderstandings come from getting them wrong:
- Year one: withdraw 4% of your portfolio balance at retirement.
- Every year after: withdraw the same dollar amount, increased by inflation — never recalculate 4% of your current balance.
Verified example: retire with $750,000, inflation at 2.5% a year:
- Year 1: $750,000 × 4% = $30,000
- Year 2: $30,000 × 1.025 = $30,750
- Year 3: $30,750 × 1.025 = $31,518.75
That discipline stops you from overspending in good years and panic-cutting in bad ones.
The 25× shortcut: how much do you need?
Because 4% is the reciprocal of 25, the rule collapses into one multiplication: nest egg needed = annual spending × 25.
Spend $40,000 a year? You need about $1,000,000. Spend $50,000? About $1,250,000. Spend $60,000? About $1,500,000. If you are still building your nest egg, our compound interest calculator shows how contributions and returns compound toward that target.
Why the experts now disagree: 4.7% vs 3.9%
The 4% rule is over 30 years old, and its two most-cited authorities now give different answers — because they are answering different questions.
Bengen says 4.7%. In his 2025 update, Bengen re-ran his historical analysis with a more diversified portfolio and raised his worst-case historical rate to 4.7% — the highest starting rate that survived every historical 30-year period in his data. That is a backward-looking floor, not a forecast.
Morningstar says 3.9%. Morningstar’s State of Retirement Income research uses forward-looking simulations based on today’s valuations and bond yields, targeting a 90% success rate over 30 years. Its 2026 base-case rate is 3.9%, up from 3.7% in 2025, for portfolios holding roughly 30% to 50% in stocks. See Morningstar’s 2026 safe withdrawal rate report.
Both are defensible: Bengen answers “what survived the worst of the past?” and Morningstar answers “what has a 90% chance of surviving the next 30 years from today?” A sensible planning range is therefore roughly 3.5% to 4.5%, with 4% in the middle.
The risk that breaks retirements: sequence of returns
The 4% rule’s biggest enemy is not low average returns — it is the order returns arrive in. This sequence-of-returns risk is worst in the first few years of retirement, when you are withdrawing from a portfolio that has just taken a hit.
Verified illustration: start with $500,000, withdraw $20,000 at the start of each year, and run two three-year paths with the same 10% average annual return:
- Bad returns early (−20%, +25%, +25%): balance after three years = $543,750
- Bad returns late (+25%, +25%, −20%): balance after three years = $564,000
Same average return, same withdrawals — but the retiree who hit the bad year first ends up $20,250 behind after just three years, and that gap compounds for decades. Our guide on how long retirement savings last shows how timing and Social Security claiming change the outcome.
When 4% does not fit
The rule assumes a 30-year retirement, a U.S. stock-and-bond portfolio, and no other income. Adjust when yours differs:
- Retiring early (40+ year horizon): most research points to 3.25% to 3.5% instead — about 28.6× your annual spending at 3.5%, not 25×.
- Significant Social Security or pension income: the rule only needs to cover the gap between spending and guaranteed income. A $50,000 lifestyle with $25,000 from Social Security needs a portfolio covering $25,000 a year — about $625,000 at 4%, not $1,250,000. Check your estimates on the Social Security Administration’s official site.
- Flexible spending: Morningstar found that flexible strategies, such as guardrails trimming spending after down years, supported starting rates above 5%. A willingness to cut 10% in a bad year beats saving an extra $100,000.
- High fees: the original studies assumed low-cost portfolios. High-fee funds drag directly on the safe rate.
Putting it together
Use the 4% rule as a starting point, not an autopilot setting. Save toward 25× your annual spending, plan on roughly 3.5% to 4%, and build in flexibility: trim spending after bad market years and revisit the plan every few years. To model your own numbers, try our 457 calculator, and read the investor education resources before making allocation changes.
Frequently asked questions
Is the 4% rule still safe in 2026?
For a traditional 30-year retirement, yes — with nuance. The rule’s creator now puts the worst-case historical rate at 4.7%, while Morningstar’s forward-looking 2026 estimate is 3.9%. Four percent sits between them, and works best as a planning starting point with spending flexibility, not a rigid promise.
How much money do I need to retire using the 4% rule?
Multiply your annual spending by 25. Spending $50,000 a year from your portfolio means about $1,250,000. Subtract guaranteed income first: if Social Security covers $25,000 of that $50,000, your portfolio only needs to fund $25,000 a year, or about $625,000.
What is sequence-of-returns risk?
It is the danger that poor returns early in retirement permanently damage your portfolio, because you withdraw while balances are down and fewer shares remain to recover. Our verified example showed two paths with the same 10% average return ending $20,250 apart after three years, purely because of return order.
Does the 4% rule work for early retirement?
Not at 4%. The rule was built for 30-year retirements, so a 40- or 50-year horizon needs a lower starting rate — research generally points to 3.25% to 3.5% — plus more flexibility. Retiring at 45 on 4% risks running out of money across far more market cycles.